Still Needed: A Sheriff of Finance

Those were the words of George Soros, the investor and philanthropist, ahead of the World Economic Forum’s annual meeting — not this year, or last year, but in 2008, a little more than a month before Bear Stearns neared collapse.

Two years on, a day before the world’s top regulators and bankers converge on the snowy alps of Davos, Switzerland, to discuss the state of the world economy, we are no closer to any sort of global financial regulator, let alone serious cooperation among countries about reform.

With the Obama administration now focused on Wall Street and hatching new measures almost by the week — like the “Volcker Rule” last week, which would prevent commercial banks from trading on their own accounts, or the bailout tax the week before — the United States’ efforts are colliding with reforms in other parts of the world.

Prime Minister Gordon Brown of Britain, for example, dismissed the Volcker idea on Monday. “In the American circumstances, it may be necessary for the private equity and hedge fund work to be separated,” he told reporters in London. “We don’t have that issue here.” (Why he believes his country doesn’t have “that issue” is unclear; firms like Barclays, for instance, face the same risks as their American counterparts.)

Britain’s chancellor, Alistair Darling, argued for a more coordinated approach: “If everyone does their own thing it will achieve absolutely nothing,” he told The Sunday Times. “The banks are global — they are quite capable of organizing themselves in such a way that if the regime is difficult in one country, they will go to another one, and that doesn’t do anyone any good.”

Mr. Darling’s point is perhaps the most significant, because it goes directly to this notion of money moving around the world to chase returns. So banks in the United States may shrink because of the new rules, but will it matter if banks in China, so closely connected with ours, end up being twice the size?

After all, in an age of global banking, being too big to fail is not a national problem. Remember Iceland?

Indeed, within hours of Mr. Obama’s announcement of the Volcker Rule last week, Wall Street banks were looking for ways to skirt it and figure out which of their international rivals would fall under it.

For example, Deutsche Bank, an increasingly powerful presence in the United States, has a private equity arm called RREEF. Would Deutsche need to divest it?

At Goldman Sachs, there are questions about whether it can shed its bank holding company status so it can continue to pursue proprietary trading, or whether it would still be allowed to do that abroad through a subsidiary.

“We now see single-country solutions being developed,” said Howard J. Davies, the former chairman of the Financial Services Authority who is now director of the London School of Economics and Political Science and a board member of Morgan Stanley. “They all have respectable rationales behind them, but are uncoordinated and bring risks of regulatory arbitrage.”

Barney Frank, the chairman of the House Financial Services Committee, who is also planning to travel to Davos (thereby providing cover to all the Wall Street chiefs who might otherwise be derided for flying to Switzerland for a slope-side boondoggle), is worried that arguments like Mr. Davies’ — taken to the extreme — will be used to stifle reform.

“The objections to tough restrictions in the United States are that it will put American businesses in a disadvantaged position and financial companies will take their operations to friendlier shores,” he said in a statement. “I believe this is wrong, and, in fact, since becoming chairman of the Financial Services Committee, I and other American officials have been working with others to prevent this situation from arising.” He added, “My major goal this week is to further our efforts at cooperation and work to prevent any national regulatory approaches that allow companies to dodge the kind of accountability and responsibility that is needed.”

There is one thing, though, that everyone in Davos can agree on: the public outrage around the world is still palpable.

That may give the regulators an important stick to push through reforms — even if they are temporary taxes on banks that are unlikely to lead to substantive changes.

“As a result of the advancement by U.S. President Obama and the financial secretary Tim Geithner about their levy on wholesale lending, I think the proposals that I made at St. Andrews for an international levy,” Mr. Brown said, “are now gaining currency around the world.”

But getting at real reform that will reshape the underwriting of the global financial system will take more than chest-thumps and one-upmanship among heads of states. We may still need a global sheriff.

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A version of this article appears in print on January 26, 2010, on Page B1 of the New York edition with the headline: Still Needed: A Sheriff Of Finance. Order Reprints|Today's Paper|Subscribe